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10/26/2008

Observations on the Milton Friedman Institute at the University of Chicago-Becker

Not long after the death of Milton Friedman in the fall of 2006, the president of the University of Chicago, Robert Zimmer, formed a committee drawn from the Economics Department, the Graduate School of Business, and the Law School. He asked the committee, which has Lars Hansen as chair and I am a member, to prepare a proposal for a large institute that would be named the Milton Friedman Institute (MFI) in honor of Friedman's long association with the University of Chicago. The president and committee considered this far preferable to naming the institute after a rich donor, which is the common practice.The committee presented a report early in 2008 to the Council composed of some faculty members at the University of Chicago. Apparently, not much opposition to the Institute was voiced at that Council meeting.
However, in late spring of this year a letter was sent to various members of the faculty and administration opposing the MFI. It was signed by about 100 faculty members and was made available to the press. This first letter was a confused combination of hostility to the economics department, hostility to market economics, objections to a few statements in the document supporting such an institute, and personal opposition to Milton Friedman, partly because of his alleged involvement in the Pinochet dictatorial Chilean government. Over time the reasons for the opposition were more carefully articulated, and the number of faculty signing the opposition to the MFI grew to over 150. Each succeeding letter became available to the media, and many articles began to appear in magazines and newspapers.
The latest statement of opposition mainly concentrates on whether it is appropriate to name such an Institute after Milton Friedman. I will address that issue in my discussion here. These comments are mainly taken from a statement I read on October 15, 2008 to a meeting of the whole faculty called by President Zimmer to discuss several issues, but especially the MFI. I elaborate in some places because our statements were limited to three minutes.
A university names an Institute after a former professor because of 1) his contributions to the university, 2) his contributions to scholarship or science, and 3) his intellectual honesty and character. On all three grounds I believe Milton Friedman eminently deserves having this Institute bear his name.
Let me first mention I knew him for over 50 years, first as a teacher, then as colleague and close friend. I admired him enormously at all these different stages.
His main direct contribution to the University of Chicago was as an absolutely superb teacher, by far the best teacher I ever had. He opened my eyes and that of other students, including Eugene Fama, James Heckman, Robert Lucas, and Lester Telser, and George Tolley, all faculty members at the University of Chicago, to how to use economic analysis to understand the real economic world. Both in the classroom, and as a supervisor of doctoral dissertations, he was a blunt and trenchant critic of shoddy analysis, both theoretical and empirical. I along with others took a lashing from him when he thought we did some analysis badly. The effectiveness of his teaching alone could merit having an Institute in his name at our university.
Many honors have recognized his enormous contributions to economic science. Equally important is that these have endured. A simple measure of that endurance is the large number of citations to his scientific work that still appear in the top economic journals. Only one or two other economists of his generation share this distinctive measure of longer run impact of their scientific work.
He was perhaps the most intellectually honest person I have ever known. To be sure, he was an active participant in public policy debates, as are many economists with very different points of view. But in his policy papers and discussions he used the same economics as he did in his academic work. He did not try to say things to curry political favor, and never held a position in Washington, except when he had a low level job at the Treasury department as a young economist. He attacked and defended persons of various political persuasions, including some of his best friends, if he believed their opinions or writings had flaws. He publicly criticized Arthur Burns, his teacher and close friend, when Arthur was chairman of the Fed, for supporting policies that Friedman considered bad economics. That public statement put enormous strains on their friendship. He is called a conservative, but he opposed many conservative positions, such as support for the gold standard, the military draft, and the war on drugs, and advocated many others that were picked up by liberals, such as the negative income tax, and attacks on corporate welfare through government subsidies to corporations.
One of the most persistent accusations is that he advised and collaborated with the Pinochet regime. In Two Lucky People, Rose and Milton Friedman's autobiography, he discusses his dealings with that government. He also includes the relevant documents so that readers can judge a lot for themselves. He turned down two honorary degrees from Chilean universities because they were state universities under Pinochet. He made one six-day trip to Chile in 1975 at the invitation of a private bank. He gave two lectures on the "fragility of freedom". He did have a brief meeting with Pinochet and wrote a letter to Pinochet afterwards urging "shock treatment" of reduced government spending and reduced growth in the money supply in order to cure the rampant inflation then afflicting Chile. His letter contains many detailed suggestions, including a call for "generous severance allowances" for laid off government workers, and a safety net to alleviate hardship and distress among the poor.
Friedman has also been criticized for helping to train some economists who served in the Pinochet government, even though teachers cannot control what their students do. Pinochet turned to the "Chicago boys"-economists trained at the University of Chicago- only several years after the centralized control of the economy that he favored had failed completely to lift Chile out of its doldrums. What is interesting in this regard is that the Social Democratic governments that followed the fall of the Pinochet government and the reintroduction of democracy have continued the vast majority of policies introduced by these Chicago-trained economists. These policies include low tariffs and a mainly free trade policy, privatized social security, and competitive private companies and universities.
As is well known, Friedman was a strong supporter of competitive market economies, but this was not defended by ideology. He used economic analysis to argue that this was the most effective way to raise the living standards of the world's poor. I strongly agree with him, and so do the great majority of economists in different parts of the world. To be sure, one can argue against this and other policy positions he took, but that is how intellectual progress is made on crucially important economic questions.
To summarize, great teacher for 30 years at the University of Chicago, outstanding researcher, and absolute intellectual honest in everything he did. To my mind these are far more than enough for faculty, students, and alumni associated with the University of Chicago, and for others as well, to be proud to have a Milton Friedman Institute at the University of Chicago.